Widely read:
If you thought you didn't need more, there's more. This time, it is the transportation and logistics fund.
To cash in on India's growth story, ICICI Prudential Mutual Fund and IDFC Mutual Fund have launched a new fund offer that will follow the transportation and logistics theme.
The two mutual fund houses say the expected formalisation of the transportation and logistics sector will spell good news for the Indian investor.
"Transportation is an under-penetrated market in India. Also, the new government policy in logistics will play a key role in the economic growth of the country. With muted performance in the last couple of years, we believe the theme is coming out of the woods and there are more legs to recovery," said Chintan Haria, Head-Product Development and Strategy at ICICI Prudential Mutual Fund.
Indeed, in order to upgrade the transportation and logistics sector, the Indian government has announced a raft of policies in recent months, including the National Logistics Policy and the ambitious Bharatmala and Sagarmala projects.
Room for growth
The timing to enter this sector is pitch-perfect, according to Daylynn Pinto, the Senior Fund Manager (Equity) at IDFC Mutual Fund. "One of the main reasons to launch the fund at this point of time is because, when we looked at the auto and logistics industry, we found that in the last few years demand was weak and size of the sector has not increased. We believe both these sectors are somewhat at the cyclical bottom and have long-term potential to outperform."
It's true the demand in this industry was fairly soft in the last few years, with the Nifty Transportation and Logistics Index growing at a weak 5.15 per cent and 7.69 per cent over a 5- and 7-year period, respectively.
But if 2022 is any indicator, the two fund houses have a strong argument in launching these thematic funds. During a time period when the Sensex dipped 0.57 per cent, prominent transportation and logistics stocks such as Mahindra and Mahindra, Maruti Suzuki and Eicher Motors have zoomed between 16 and 50 per cent.
Moreover, the UTI Transportation and Logistics Fund - the only such fund that focuses on this particular theme - has given returns of over 14 per cent this year.
When asked about the fund strategy, Pinto said, "The strategy of the fund is simple; the focus will remain on investing in stocks of the transportation and logistics sector. These sectors have around 16 sub-sectors ranging from autos, auto ancillaries, tours and travel services, and airlines, among others."
Our take
If you take the two fund houses at face value, there is a strong case to invest in this sector.
However, we do not see the point in releasing yet another thematic fund, as this will only further confuse a potential mutual fund investor.
At Value Research, we believe in simplicity, and launching more funds merely adds to the activity-mongering. The strategy in these types of funds keeps fluctuating based on time and market sentiment, which is counterproductive. Ideally, a mutual fund's strategy should align with an investor's objective and not be driven by short-term movements/volatility.
Furthermore, the rosy picture painted by the fund houses might crumble if India's growth story hits a roadblock. This is one of the major risks attached to funds that concentrate on one theme.
It's best if you invest in diversified equity funds or flexi-cap funds instead, as they too invest in big transportation and logistics companies.
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